A surging New Taiwan dollar is proving a double-edged sword for the economy, undermining export competitiveness while helping lower import costs, a familiar dilemma for domestic exporters, the central bank said yesterday, as the local currency has risen more than 10 percent against the US dollar this year.
Taiwan has weathered similar cycles, central bank Deputy Governor Yen Tzung-ta (嚴宗大) said at a meeting of the legislature’s Economics Committee, citing the 2019–2022 period when the NT dollar appreciated to NT$27.532 against the greenback.
Despite that, exports jumped 13.9 percent as GDP grew 4.3 percent, outperforming most major economies, thanks to remote working and schooling during the COVID-19 pandemic driving tech demand Yen said.
Photo: CNA
The local currency’s strength this year reflects robust export momentum, driven by booming demand for chips and electronics used in artificial intelligence (AI) applications, even as global markets assess the implications of US President Donald Trump’s evolving tariff policy, he said.
The NT dollar closed at NT$29.391 against the US dollar in Taipei trading yesterday, having gained 12.3 percent since April, central bank data showed.
A stronger currency is not entirely a burden, as many manufacturers import raw materials, Yen said.
“A strong NT dollar helps lower input costs, which can help protect profit margins,” he said.
From 2015 to 2021, Taiwanese listed companies recorded NT$116.7 billion (US$3.97 billion) in foreign exchange losses, but from 2022 to last year, they posted NT$474.9 billion in foreign exchange gains, yielding a net benefit of NT$358.2 billion, he said.
Despite recent volatility, the NT dollar remains relatively stable compared with other currencies, such as the yen, euro and won, he said.
Many firms also manage their foreign exchange exposure through forward contracts or natural hedging strategies, limiting their vulnerability to short-term swings, he said.
Taiwanese exporters can adapt by raising prices, shifting orders, and emphasizing high-margin or value-added products, he said.
Over the longer term, they are diversifying their markets and supply chains to build resilience, he added.
“Past experience shows that Taiwan has a certain degree of resilience to currency appreciation,” he said.
The central bank remains committed to maintaining stability in the foreign exchange market, he said.
It does not need to intervene aggressively to meet that goal, but stands ready to adjust policy if needed to keep the currency relatively stable against global peers, he said.
Moreover, the central bank is closing monitoring foreign capital flows to prevent speculative currency plays through inverse exchange-traded funds (ETFs), he said.
To curb such risks, the central bank and the Financial Supervisory Commission reached a consensus as early as 2020, capping foreign investors’ holdings of inverse ETFs at 30 percent of total issuance, he said.
Yen said the central bank monitors foreign activity daily and would swiftly order capital outflows if it detects currency speculation, in line with what he described as a “guest eviction order.”
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